Do you see what I see? The papers are full of hare-brained initiatives. Every day you hear the government, the Bank of England, or some other organisation on about some new scheme to crank the economy back into life.
Vince Cable’s desperately trying to launch a new business bank – one to go forth and boldly lend where others fear to tread. Of course, the Bank of England’s already trying the same trick with its ‘funding for lending scheme’ – a cunning plan to strong-arm the banks into pumping cash out to businesses.
Then of course there’s the government’s attempts to kick start the construction industry by relaxing planning laws. More houses, more extensions and loft conversions... go out and spend!
All of these schemes have one thing in common. They all involve debt.
And what most people don’t understand is why debt has become so fundamental to our economy.
Why are the authorities so desperate to ram debt down our throats? Today we’ll take a good hard look. And we’ll look at an exciting new way to protect yourself from the pending debt time-bomb.
There’ll be a revolution
Henry Ford had it right...
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
Most people don’t understand how money works (even the folk that work in the City of London!) The fact is that money is created through debt. To most people this is an alien concept. They think that it works the other way round.
The misconception starts from day one... it’s the way we’re brought up: first you do the work – then you get the money. Be good – get your pocket money. Do some work – get a pay cheque. Save your pay cheques, get a car.
But in reality, money works the opposite way. It is neither toil, nor any productive asset that creates money. It is, in fact, the banks that create money. Of course, everyone’s well aware that the central banks can create money – we’ve all been reminded of that with the whole quantitative easing affair.
But what may surprise you is that all banks create money.
An exclusive report from The Right Side
You sign up to a mortgage, or a bank loan and the bank can simply invent the money and hand it over to you. As far as the bank is concerned your indebtedness is a new asset on its balance sheet.
And we all know that money makes the world go round. So the more YOU pile on the debt, the better it is for society. Well, that’s the thinking behind the scheme anyway.
How banks create credit
How credit is created, what the 'money multiplier' is, and how fractional reserve banking works.
• Watch all of Tim's videos here
If you’re not familiar with this concept, I urge you to take a look at Tim Bennett’s excellent video on how banks create credit.
Student debt, car debt, mortgages, new kitchens, home extensions, credit cards... loans, loans, loans.
Debt creates new money. And new money sloshing around the economy is fantastic news. The guy who put in the kitchen now has a load of cash to spend. He might have a nice meal, or even go on an expensive holiday. The cash quickly moves around the economy and makes everyone feel good.
That’s why all these initiatives we’re hearing about are based on new debt.
But you can only go so far
So, anyone with access to debt has in fact got the power to create money – YOU are just as powerful as the Bank of England... well you, along with the rest of us.
But the corollary is that you also have the power to destroy money - and by implication, destroy the economy. In economics, it’s known as the paradox of thrift. That is, if everyone starts saving instead of borrowing, the economy starts to wilt as money supply collapses.
Saving is a killer! And it ripples through the economy stifling everything – including the government’s tax take!
So now you see why the authorities want you to borrow!
The thing is, the authorities have got it into their heads that the big problem is the banks won’t lend. But what if the problem is quite different: What if we don’t want to borrow anymore?
Ah, well, they say – “You don’t know what you want... so we’ll just borrow on your behalf – and the Bank of England can go on and create the new money.”
This is the economics of banana republics. And it’s very dangerous.
It means you’re going to have to be very careful about how you invest. That’s why I keep saying you need to own gold. It’s been a consistent theme of mine since day one of The Right Side. And I hope that along the way you’ve taken advantage of some of my ways to get exposure to gold. I’m confident they’ll put you in good stead in the months ahead.
How to outperform gold’s gains
In Friday’s issue of The Right Side I told you about what I see as a game-changer for the gold market. You already know you should be holding a portion of physical gold as ‘insurance against Armageddon’ as I call it. Personally, I use gold coins for that.
But on Friday I explained why I think now could be a great time to get some exposure to gold mining shares, too. And I put you in contact with the best guy I know to show you how to do that – a fellow called Simon Popple.
Simon’s a man with more than 50% of his life savings in one niche of the gold market that’s rarely mentioned in the media. But according to this expert, it could be set to outperform – and if you know where to invest, it could have the power to transform your portfolio returns. Click this link for more: How to double your money from the next stage of the gold bull market.
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